TRADIA CORPORATION

It is explicitly stated that, given the enormous volume of handled transactions and the wide variety of administrative work involved in cargo handling, the possibility of business claims of various sizes occurring is very high. There is a risk that administrative errors by officers and employees or cargo accidents could cause damage to business partners, resulting in the Company bearing liability for damages. The Company works to prevent recurrence through the development of operational manuals, review of administrative procedures, reporting obligations to the Executive Officers' Meeting, and awareness-raising among all employees at monthly meetings.

The Company obtained Specified Bonded Area Approval and Authorized Customs Broker certification in 2008 and conducts bonded warehouse and customs brokerage operations at the five major ports; however, minor administrative sanctions, ranging from verbal warnings to demerit points, have sporadically occurred in the past. In the event of a serious incident, the Company could face administrative sanctions such as a suspension of bringing goods into its own bonded warehouses for a certain period, which could have a material impact on business performance through loss of trust from business partners and damage to social credibility. Under the accident response committee, the Company formulates recurrence prevention measures and implements reporting to the Executive Officers' Meeting and thorough awareness-raising among all employees.

In addition to computer system downtime and malfunctions, there is a risk of incurring losses due to system downtime or unauthorized use resulting from cyberattacks on companies, which have become increasingly frequent in recent years. Logistics operations are highly dependent on systems, and in the event of a failure, business continuity could be disrupted. The Company seeks to minimize impact and achieve early recovery through various measures based on its security policy, the development of an information asset management framework, and the establishment of backup systems.

In addition to bad debt risk arising from the bankruptcy of business partners, the Company faces risks from fluctuations in ocean freight rates and exchange rates. As of the end of the current consolidated fiscal year, against a balance of notes and accounts receivable and contract assets of over ¥1,676 million, the balance of advances paid stood at over ¥778 million, which is higher than that of typical companies, creating risks related to working capital management and the potential conversion of receivables into bad debts. The Company strives to reduce receivables collection risk through the establishment of credit limits, receipt of advance payments, switching to direct payment of customs duties, and enhanced information sharing with overseas joint venture companies.

If a large-scale natural disaster such as a Nankai Trough earthquake or a pandemic such as the novel coronavirus (COVID-19) were to occur on a scale exceeding expectations, severe damage to logistics facilities centered on the five major ports and a significant decline in labor productivity could make business operations difficult, potentially having a major impact on financial condition and business results. The Company is strengthening its crisis management system through the consolidation of core system data centers, partial redundancy of the company-wide network, diversification of business locations, and promotion of a telework system.

The main cargo of the Export Division is heavily concentrated in machinery and equipment, and changes in global supply chain production conditions or in the order volumes of business partners cause fluctuations in handling volume that significantly affect business performance. The Import Division is also heavily concentrated in consumer goods such as textile products and daily necessities, creating a structure in which domestic consumption trends directly affect business performance. The Company's policy is to diversify by actively pursuing the development and diversification of handled cargo and strengthening the handling of high-value-added cargo at its own warehouses.

The share of operating revenue related to China is extremely high, at 48.7% for the Import Division, 61.5% for the International Division, and 49.8% for the company as a whole, and overseas joint venture companies are also centered on China. Changes in U.S. trade policy leading to trade friction, conflicts in the region, or legal reforms affecting foreign capital could result in a significant decrease in export and import cargo volumes or difficulty in conducting business activities. In addition, dependence on specific business partners is also high, with the top 10 export companies accounting for a 58.6% share and the top 10 import companies accounting for a 39.2% share. The Company aims to move away from its concentration on China in its overseas operations and to enhance and strengthen new overseas locations in line with changes in the global production structure.

Due to the advance payment practices unique to the port logistics industry (ocean freight, customs duties, etc.), the balance of advances paid is higher compared to typical companies, creating risks related to working capital management as well as the risk of these receivables turning into bad debts. As of the end of the current consolidated fiscal year, the balance of advances paid amounted to over ¥778 million; while this serves as a means of developing new business partners, it also carries collection risk. The Company strives to prevent receivables from becoming bad debts through thorough customer credit investigations, credit management, and early collection.

There are risks of losses arising from issues related to labor practices (personnel treatment and work management) and workplace health and safety, as well as employer liability risk arising from unlawful acts by officers and employees. The Company aims to realize a comfortable working environment through the development of work rules, compliance with labor standards-related laws and regulations, and cooperation with labor unions.

There is a risk of the Company's survival being threatened or of suffering significant damage due to external attacks by anti-social forces. Recognizing that corporate defense is essential to protect group companies, employees, shareholders, and others, the Company strengthens information gathering and cooperation with external contacts, centered on the Board of Directors. A response committee is established as needed to address such issues.